Ocean Transport: Power struggle

   Shippers could regain the upper hand this year as carriers continue to deal with the threat of overcapacity as well as challenges from high bunker costs, volatile spot rates and uncertainty from global trade tension.
   Consolidation among ocean carriers peaked in 2017, and their monopolization took the power away from shippers. The general consensus among 400 shippers and forwarders surveyed by Drewry and the European Shippers’ Council was that carrier performance deteriorated between 2016 and 2017 in terms of available carriers and services as well as the price and quality of those services.
   Carriers have been aggressively cutting services, perhaps in fear of a repeat of 2016, when rampant overcapacity took a toll on earnings across the board and pushed Hanjin into bankruptcy.
   On the transpacific trade, the 2M Alliance suspended its TP1/New Eagle at the beginning of July, while THE Alliance is scheduled to consolidate its PS5 and PS8 loops the first week of August. In addition, the OCEAN Alliance is slated to merge two of its loops on the Asia-Mideast trade at the end of July.
   Spot rates are down compared to last year, despite carriers’ efforts to consolidate. In early July, the Shanghai Containerized Freight Index, which estimates spot rates from Shanghai to 13 regions throughout the world, was down 8.1 percent year-over-year. The World Container Index, a composite of spot rates on eight major routes to and from the United States, Europe and Asia, was down 5.3 percent from 12 months prior.
   According to Drewry’s Container Forecaster report released in early July, world demand in 2016 grew 2.6 percent year-over-year, while world fleet capacity grew 1.2 percent. However, Drewry projects year-over-year world demand growth this year will outpace world fleet growth at a narrower margin of just 1.1 percentage points, with world demand growth at 6.5 percent and world fleet growth at 5.4 percent. 
   Clarksons Research’s Container Intelligence Monthly for June said that container volumes grew 4.2 percent year-over-year in 2016, while containership capacity inched up 1.2 percent. However, Clarksons projects that for 2018, container volumes and containership capacity will both grow 5.3 percent.
   Based off this data, the balance between supply and demand in 2016 versus the 2018 outlook should be rather alarming for container carriers, considering how volatile 2016 was on their bottom lines.
   However, overcapacity may not be an issue for carriers by 2019, considering Clarksons projects containership deliveries will decline between 2018 and 2019 and demolition will rise. Containership deliveries in 2017 had an aggregate capacity of 1.17 million TEUs, while 2018 is forecast at 1.25 million TEUs and 2019 is forecast at 924,600 TEUs. Containership demolition in 2017 totaled 398,600 TEUs worth of capacity, while containership demolition in 2018 is forecast at 137,000 TEUs and 2019 is forecast at 187,900 TEUs. 
   Looking ahead, Simon Heaney, senior manager of container research at Drewry, said, “There will be some gain for carriers this year in the form of increased demand and slowly improving supply-demand, but a lot more pain.
   “Escalating fuel prices have caused us to slash the industry’s profitability forecast to breakeven, and while freight rates are expected to rise modestly in 2018, it won’t be sufficient to turn things around,” he added. “In some ways, buoyant demand is a problem for carriers right now as every extra box shipped at a loss only amplifies the deficit.”